UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[ X ] Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the period ended March 31, 1999
or
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from ___________ to _______
Commission File Number: 0-9247
Auto-trol Technology Corporation
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(Exact name of registrant as specified in its charter)
Colorado 84-0515221
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
12500 North Washington Street, Denver, Colorado 80241-2400
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(Address of principal executive offices)
(303) 452-4919
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [ X ] Yes [ ] No
Number of shares outstanding as of May 15, 1999: 18,092,954
AUTO-TROL TECHNOLOGY CORPORATION
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REPORT TO SECURITIES AND EXCHANGE COMMISSION ON FORM 10-Q
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FOR THE THREE MONTHS ENDED MARCH 31, 1999
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Page
Number
Part I. Financial Information
Item 1. Financial Statement
Consolidated Statements of Operations (unaudited),
six months ended March 31, 1999 and 1998 1
Consolidated Balance Sheets (unaudited),
March 31, 1999 and September 30, 1998 2
Consolidated Statements of Cash Flows
(unaudited), six months ended March 31, 1999 and 1998 3
Notes to Consolidated Statements 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 5-8
Part II. Other Information, Item 6(b) Reports on Form 8-K 9
Signatures 10
AUTO-TROL TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share amounts)
(unaudited)
Three Months Ended Six Months Ended
March 31, March 31,
------------------------ -----------------------
1999 1998 1999 1998
------------------------ ------------------------
Revenues:
Sales ........................................... $ 695 $ 556 $ 2,015 $ 1,387
Service ......................................... 2,331 2,335 4,668 5,248
-------- -------- -------- --------
3,026 2,891 6,683 6,635
Costs and expenses:
Cost of sales ................................... 225 62 480 272
Cost of service ................................. 264 1,077 1,189 2,221
Research and product development ................ 1,887 1,518 3,347 3,029
Marketing, general and administrative ........... 2,400 2,529 4,360 4,915
-------- -------- -------- --------
4,776 5,186 9,376 10,437
Loss from operations ................................ (1,750) (2,295) (2,693) 3,802)
Interest income ..................................... 50 7 68 13
Interest expense .................................... 158 187 438 364
-------- -------- -------- --------
Loss before income taxes ............................ (1,858) (2,489) (3,063) (4,153)
Income tax expense/(benefit) ........................ 1 (2) 1 0
-------- -------- -------- --------
Net loss ............................................ $ (1,859) $ (2,487) (3,064) (4,153)
======== ======== ======== ========
Basic and diluted loss per share .................... (.11) (.35) (.19) (.58)
Weighted average number of basic
and diluted common shares outstanding ............ 16,905 7,913 16,079 7,816
AUTO-TROL TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
SIX MONTHS ENDED MARCH 31, 1999
(in thousands except per share amounts)
(unaudited)
Net Loss........................................................... $(2,487)
Other Comprehensive Income/(Loss) net of tax:
Foreign Currency translation Adjustments ..................... 789
-------
Total Comprehensive Income/(Loss).................................. $(1,698)
-------
See Notes to Consolidated Financial Statements
1
AUTO-TROL TECHNOLOGY CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands except per share amounts)
March September
31, 1999 30, 1998
(unaudited)
---------------------
ASSETS
Current Assets:
Cash and cash equivalents .......................... $ 1,823 $ 1,325
Receivables, net of allowance of $50 and $153 ...... 1,463 1,860
Inventories and Billable Services .................. 48 50
Prepaid expenses ................................... 239 305
-------- --------
Total current assets .......................... 3,573 3,540
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Property, facilities and equipment:
Land ............................................... 356 356
Building and improvements .......................... 8,450 8,435
Machinery and equipment ............................ 7,069 7,005
Furniture, fixtures and leasehold improvements ..... 1,135 920
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17,010 16,716
Less accumulated depreciation and amortization ..... (11,092) (10,948)
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5,918 5,768
Purchased software, net of accumulated
amortization of $1,429 and $1,428 ..................... 511 290
Other assets ........................................... 47 139
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Total assets .................................. $ 10,049 $ 9,737
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt .................. $ 280 $ 240
Accounts payable ................................... 261 402
Accrued interest payable, related
party portion $356 and $398 ....................... 503 421
Unearned service revenue and customer deposits ..... 1,119 1,410
Accrued compensation and related taxes ............. 242 362
Other liabilities .................................. 1,093 1,118
-------- --------
Total current liabilities ..................... 3,498 3,953
Long-term debt, related party
portion $5,167 and $4,125 .................... 6,367 5,325
-------- --------
Total liabilities ............................. 9,865 9,278
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Shareholders' equity:
Common stock, $.02 par value;
authorized 40,000,000 shares;
issued (including treasury share)
18,092,954 and 14,895,093 shares ................. 362 248
Additional paid-in capital ......................... 97,610 95,674
Cumulative currency translation adjustments ........ (19) (808)
Accumulated deficit ................................ (97,284) (94,220)
Treasury stock, 26,020 common shares at cost ....... (485) (485)
-------- --------
Total shareholders' equity .................... 184 459
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10,049 $ 9,737
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See Notes to Consolidated Financial Statements
2
AUTO-TROL TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Six Months Ended
March 31,
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1999 1998
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Cash flow from operating activities:
Net loss ...................................................................... $(3,470) $(4,154)
Adjustments to reconcile net loss
to net cash used by operating activities:
Depreciation and amortization ................................................. 319 606
Loss (gain) on disposal of property, facilities and equipment ................. 0 25
Changes in operating assets and liabilities
Receivables .............................................................. 397 1,568
Inventories/Work in Process .............................................. 2 (7)
Prepaids ................................................................. 66 61
Accounts payable ......................................................... (101) (196)
Accrued interest payable ................................................. 82 (189)
Increase in Income Tax payable ........................................... 0 62
Unearned revenue and customer deposits .............................................. (291) 718
Other liabilities ........................................................ (145) (744)
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Net cash used by operating activities ............................................... (3,141) (2,357)
Cash flows from investing activities:
Capital expenditures .......................................................... 515 (396)
Proceeds from sale of property, facilities and equipment ...................... 15
Other assets .................................................................. 92 (1)
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Net cash used by investing activities ............................................... 607 (382)
Cash flows from financing activities:
Proceeds from issuance of notes payable, related party ........................ 1,042 6,400
Payments on notes payable, capital leases and long-term debt .................. 0 (4,008)
Proceeds from issuance of common stock ........................................ 2,000 2
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Net cash provided by financing activities ........................................... 3,042 2,394
Effect of exchange rate changes on cash ............................................. (10) (63)
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Net increase (decrease) in cash and cash equivalents ................................ 498 (408)
Cash and cash equivalents at the beginning of the year .............................. 1,325 1,421
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Cash and cash equivalents at the end of the period .................................. 1,823 1,013
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See Notes to Consolidated Financial Statements
3
AUTO-TROL TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1999
(1) Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for the
interim financial information and with the instructions to Form 10-QSB and Rule
10-01 of Regulation S-X. Financial information as of September 30, 1998 has been
derived from the audited consolidated financial statements of Auto-trol
Technology Corporation and subsidiaries (the Company).
The condensed consolidated financial statements do not include all information
and notes required by generally accepted accounting principles for complete
financial statements. However, except as disclosed herein, there has been no
material change in the information disclosed in the notes to the consolidated
financial statements as of and for the year ended September 30, 1998 included in
Form 10-K previously filed with the SEC. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included in the accompanying condensed consolidated
financial statements. Operating results for the three month periods ending
December 31, 1998 are not necessarily indicative of the results that may be
expected for the year ending September 30, 1999.
(2) Loss Per Share
The provisions of Statement of Financial Accounting Standards No. 128, Earnings
Per Share, are effective for financial statements for interim periods ending
after December 15, 1997. Basic loss per share is computed on the basis of
weighted-average common shares outstanding. Diluted loss per share is the same
as basic loss per share for the six month period ending March 31, 1999 and 1998,
as no dilutive common stock equivalents were outstanding.
(3) Related Tax Effects Allocated to each Component of Other Comprehensive
Income(Loss)
Six Months Ended March 31, 1999
Before-Tax Tax (Expense) Net of Tax
Amount or Benefit Amount
---------- ------------ -------
Foreign Currency Translation Adjustments: 798 0 798
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(4) Disclosure of Accumulate Other Comprehensive Income (Loss) Balance
Six Months Ended March 31, 1999
Foreign Currency
Translation Adjustments
-----------------------
Beginning Balance: (808)
Current Period Change: 798
----
Ending Balance: (19)
----
4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Except for the historical information contained herein, the following
discussions contain forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
discussed here. The Company undertakes no obligation to revise any
forward-looking statements in order to reflect events or circumstances that may
subsequently arise. Some additional factors, among others, are: the likelihood
that actual future revenues that are realized may differ from those inferred
from existing total backlog; the ability of the Company to attract and retain
highly trained professional employees; the delay or deferral of customer
implementations; the Company's success in expanding its direct sales force and
indirect distribution channels; the timing of new product introductions and
product enhancements by the Company and its competitors; the mix of products and
services sold; levels of international sales; the ability of the Company to
develop and market new products and control costs and general domestic and
international economic and political conditions.
Results of Operations
Overview
Operating losses for the second quarter ended March 31, 1999 continued, however
they decreased $545,000 as compared to the second quarter ended March 31, 1998.
The company continues to believe that its Product Data Management (PDM),
Electronic Publishing Solutions (EPS) and when it is completed, network
configuration products, will present a unique complementary combination that
will differentiate the Company from its competitors.
Due to the nature of the software industry, the future operating results of the
Company, depend largely on its ability to rapidly and continuously develop and
deliver new software products that are competitively priced and offer enhanced
performance. The Company believes that its products are competitive both
functionally and from a pricing perspective. However, the Company is unable to
predict the impact of new products or the effect that industry economic
conditions will have on future results of operations.
The three months ended March 31, 1999 compared to three months ended March 31,
1998
- --------------------------------------------------------------------------------
Revenues - For the quarter ended March 31, 1999, total sales and service revenue
increased $135,000 or 4.7%, from the quarter ended March 31, 1998.
In Thousands Increase %
Three Months Ended (Decrease)
March 31, 1999 March 31, 1998
----------------------------------- -------------------------------------
Sales Revenue $ 695 $ 556 $ 139 25%
Service Revenue 2,331 2,335 (4) (.2%)
=================================== =====================================
3,026 2,891 135 4.6%
5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS-(continued)
Cost of Sales and Service - For the second quarter ended March 31, 1999, gross
profit margins on total revenue increased to 83.8% from 60.6% for the second
quarter ended March, 1998. Gross profit margins on sales revenue for the second
quarter ending March 31, 1999, decreased to 67.6% from 88.8% for the second
quarter ended March 31, 1998.
Gross profit margins for total service revenue in the second quarter of fiscal
1999 increased $809,000, yielding a gross margin of 88.7 %, as compared to a
gross margin of 53.9% in the second quarter of fiscal 1998.
Research and Product Development - Research and development expenses were
approximately 62.3% of revenue for the quarter ended March 31, 1999 and 52.5% of
revenue for the quarter ended March 31, 1998. Total research and development
expense decreased by 24.3% or $369,000 in the second quarter ended March 31,
1999 compared to the previous year's second quarter.
Marketing, General, and Administrative - In the second quarter ended March 31,
1999, marketing, general and administrative expenses decreased $129,000, or
5.1%, from the second quarter ended March 31, 1998. This decrease was due to a
continuing effort to streamline costs.
Interest - In the quarter ended March 31, 1999, interest expense decreased
$29,000 from the quarter ended March 31, 1998 as a result of decreased
borrowings. Interest income decreased $43,000 as compared to the second quarter
of fiscal 1998.
The six months ended March 31, 1999 compared to six months ended March 31, 1998
- --------------------------------------------------------------------------------
Revenues - For the six months ended March 31, 1999, total sales and service
revenue increased $48,000 or .7%, from the quarter ended March 31, 1998.
In Thousands Increase %
Six Months Ended (Decrease)
March 31, 1999 March 31, 1998
--------------------------------------- -----------------------------------
Sales Revenue $ 2,015 $ 1,387 $ 628 45.2%
Service Revenue 4,668 5,248 (580) (11.%)
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6,683 6,635 48,000 .7%
Cost of Sales and Service - For the six months ended March 31, 1999, gross
profit margins on total revenue increased to 75% from 62% for the six months
ended March 31, 1998. Gross profit margins on sales revenue for the six months
ending March 31, 1999, decreased to 76% from 80.3% for the six months ended
March 31, 1998.
Gross profit margins for total service revenue in the six months of fiscal 1999
increased $452,000, yielding a gross margin of 74.5%, as compared to a gross
margin of 57.7% in the six months of fiscal 1998.
Research and Product Development - Research and development expenses were
approximately 51% of revenue for the six months ended March 31, 1999 and 45.7%
of revenue for the quarter ended March 31, 1998. Total research and development
expense increased by 10.5% or $318,000 in the first six months ended March 31,
1999 compared to the previous year's six months.
Marketing, General, and Administrative - In the six months ended March 31, 1999,
marketing, general and administrative expenses decreased $555,000, or 11.3%,
from the six months ended March 31, 1998. This decrease was due to a continuing
effort to streamline costs.
6
Interest - In the six months ended March 31, 1999, interest expense increased
$74,000 from the six months ended March 31, 1998 as a result of increased
borrowings. Interest income increased $55,000 as compared to the six months of
fiscal 1998.
Liquidity and Capital Resources
Financial Condition - At March 31, 1999, the Company had approximately
$1,823,000 in cash and cash equivalents, which was 37.6% higher than cash
balances at September 30, 1998. The Company's net working capital was $75,000
March 31, 1999, as compared to a working capital deficit of $413,000 at
September 30, 1998. Other than the uncertainty of future profitability, there
are no known demands, commitments, events, or uncertainties that will result in
the Company's liquidity increasing or decreasing in any material way. At
December , 1998, the Company had outstanding related party debt of $3,850,000
from an affiliate of Howard B. Hillman, the Company's President, Chairman of the
Board and principle shareholder. The Company will require additional funds from
its majority shareholder to continue to fund future operating losses. The
shareholder has committed, in writing, to continue providing financial support
at least through December 31, 1999. If the Company does not achieve
profitability in the near future, it will continue to be dependent on its
majority shareholder for additional funding and to continue as a going concern.
The Company's long term viability will be in jeopardy if it is not able to
achieve financial independence through improved results, or should support from
its majority shareholder not continue after December 31, 1999.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS-(continued)
Currency Fluctuations
The Company has three wholly owned International subsidiaries and one branch
operation. The three subsidiaries are located in Germany, Canada and the United
Kingdom; the branch is located in Australia. The Company does business in the
local currencies of these countries, in addition to other countries where the
subsidiaries may have customers, such as Norway, Switzerland and Italy. These
local currency revenues and expenses are translated into dollars for U.S.
reporting and consolidation purposes.
The Company does not use foreign exchange contracts, interest rate swaps, or
option contracts. Foreign currency risk for the Company is limited to
outstanding debt owed to the Company by the subsidiaries. The Company invoices
its subsidiaries in their local currencies for products that are sold to the
subsidiaries' end customers. Upon receipt of payment from the subsidiaries, a
foreign currency gain or loss can occur. For the first three months ended March
31, 1999, the Company had realized a loss of approximately $10,202 through
payments it had received from its subsidiaries as compared to a $27,800 loss for
the same period in 1998.
8
PART II. OTHER INFORMATION
Item 6(b) Reports on Form 8-k
Form 8-K was filed on March 1, 1999 in order to announce the change of auditors.
The change from KPMG LLP to Gelfond, Hochstadt Pangburn, P.C., is effective for
the fiscal year 1999.
9
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
AUTO-TROL TECHNOLOGY CORPORATION
(Registrant)
Date: May 14, 1999 /s/ HOWARD B. HILLMAN
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Howard B. Hillman,
Chairman of the Board, President
(Principal Executive and Financial Officer and
Principal Accounting Officer)
10